Home

WHEN THE BUILDER GETS TOUGH, RERA WILL GET GOING!

November 18, 2021

By Nihit Nagpal and Manmeet Singh Marwah

INTRODUCTION

In the past decade, homebuyers have often approached various Courts and Forums seeking relief against builders/ promoters like Consumer Courts, Criminal Courts and Real Estate Regulatory Authority (RERA) and the authority of the RERA to grant refunds, compensation and other reliefs have been often challenged by the builders.

The Hon’ble Supreme Court keeping the same in view has passed an order dated November 11, 2021 in Newtech Promoters and Developers Limited V. State of Uttar Pradesh[1], dealing with variety of issues to put a halt on such vexatious practices of the builders and clarified the existing ambiguity on various provisions of RERA.

BRIEF FACTS

In the instant case, the homebuyers were frustrated at the failure of the builder i.e. M/S Newtech Promoters and Developers Pvt Ltd to deliver the possession of the unit in accordance to the terms of the Agreement with the builder.

To get compensation for such deceptive behavior of the builder, the homebuyers filed a complaint before Uttar Pradesh Real Estate Regulatory Authority, wherein an order was passed in the favor of the homebuyers and UPRERA directed the builder to refund the principal amount along with interest as mentioned in the Rules prescribed by the State Government under the Real Estate (Regulation and Development) Act, 2016 (hereinafter referred to as the ‘Act’).

Aggrieved by the aforesaid, M/S Newtech Promoters and Developers Pvt. Ltd. challenged the said order of UPRERA, however, taking an unconventional route the builder rather than filing an appeal under Section 45(5) of the Act, filed an appeal before the High Court of Allahabad under Article 226 and 227 of the Constitution of India and challenged the jurisdiction of the Single Member of the Authority for passing such an order of refund.

In addition, the builder also questioned the pre-requisite of deposit of the amount as necessitated under Section 43(5) of the Act. The High Court of Allahabad, however, found no merit and dismissed the Writ Petition of the builder. The builder being aggrieved by the said judgment of the High Court of Allahabad filed an appeal before the Hon’ble Supreme Court of India.

JUDGEMENT BY THE APEX COURT

The Hon’ble Supreme Court before moving to the submissions and contentions of the parties elucidated the history and objectives of the Act and stated that the RERA was introduced as a means to put an end to fraud, delay in payments and high transaction costs charged by the builders.

According to the Hon’ble Supreme court the provisions under RERA acts as a crusader to protect the consumers against the illusive acts of the builders and promoters. The Apex Court also observed that the Act does not only favor the consumers but also shields the interest of the promoters by imposing responsibilities on consumers as well. This transparent Act was drafted to establish a fast track dispute resolution mechanism and to bring standardization in the real estate sector in India.

The Hon’ble Supreme Court decided the matter on the following issues:

Issue No. 1: Whether the Act has retroactive or retrospective affect and what are the legal consequences of the Act if it is verified upon touchstone of the Indian Constitution?

It was held by the Hon’ble Supreme Court that the Act is not retrospective in nature because it affects the current existing rights of persons mentioned in the Act like promoters, buyers etc. The Apex Court stated that the legislative intent was to bring the ongoing real estate project or development activity within the ambit of the Act.

The Apex Court was also of the view that going by text of the law, the aim of the legislature was never to include those cases where the completion certificate has already been granted by the Authority. The Apex Court however, also observed that scheme of the Act on other hand is retroactive in character and thus, it can be safely deduced that the completed projects are not within the fold of the Act, thereby, in no manner does the accrued or vested rights are affected.

Subsequently, it was also noted that the future or the on-ongoing projects registered under Section 3 of the Act have a mandate to prospectively follow the rules of the Act.

Issue No. 2:  Whether the Authority under the Act has power to pass an order directing the builders to refund the amount to the allottee under Section 12, 14, 18 and 19 of the Act or does such a power exclusively vests with the Adjudicating Officer under Section 71 of the Act?  

On one hand it was contended by the builder that the ‘Authority’ and the ‘Adjudicating Officer’ are two different individuals whose power have been carved out separately in the Act. The Adjudicating Authority has power under Section 71 to deal with the complaint under Sections 12, 14, 18 and 19 of the Act. On the other hand, it was submitted by the homebuyers that there exists a difference between the right to get refund on demand and the a right to receive compensation. The right to refund solely rest with the Authority whereas adjudging of cases regarding compensation must be left with the Adjudicating Officer as provided under Section 71 of the Act.

The Apex Court while agreeing with the view of the homebuyers stated that although expressions like ‘interest’, ‘refund’, and ‘penalty’ indicates distinct expression under the Act but a conjoint reading of Sections 12, 14, 18 and 19 along with Sections 71 and 72 makes it crystal clear that if a consumer files complaint against the promoters or real estate agents for refund of the amount, interest on the refund or penalty for delayed delivery possession and interest thereon, the same will be looked upon by Regulatory Authority. However, if the complaint pertains to compensation and interest thereon, the Adjudicating Officer will have the power to deal with such cases.

Issue No. 3: Whether the Authority under Section 81 has the power to delegate its function of hearing of complaints instituted under Section 31 of the Act to a Single Member?

The Hon’ble Supreme Court found no error in the action of Authority delegating its power to the Single Member while observing that the refund of the amount with interest was not strictly a mechanical process and that a minimal nature of scrutiny is required while perusing materials on record. The Apex Court pronounced that Section 81 of the Act bestows the Authority to delegates its power to any of the member of the Authority with an exception to make rules and regulations under Section 85 of the Act. The Apex Court further stated that the transfer of power to dispose off the complaints under Section 31 of the Act does not dehors the mandate of the Act.

The Apex Court also explained that Section 81 bars Adjudicating Officer who has been appointed under Section 71 to delegate its power but allows the Authority to delegate under its wisdom. It was further noted by the Court that the only aspect which  has been excluded from the ambit of the Authority is the power to make regulation which in the instant case did not happen. It is pertinent to note that in the present case the Authority delegated its power to dispose of the complaints under Section 31 of the Act to a Single Member.

The Apex Court also highlighted that if a consumer is unhappy with the decision of the Authority taken under Section 31 of the Act, it can be appealable to the tribunal under Section 43(5) and to the High Court under Section 58 of the Act.

Issue No. 4: Whether the pre-condition of pre-deposit mentioned under Section 43(5) of the Act for dealing with substantive right of appeal is valid in the eyes of law?  

Section 43(5) of the Act, endows the aggrieved person to file an appeal before Appellate Tribunal against the order of either an Authority or the Adjudicating Officer under the Act. It mandates the promoter to deposit atleast thirty percent of the penalty or such an amount as determined by the Tribunal which may include compensation to be given to the alllotee, to the Tribunal before the case is heard.

The Apex Court outrightly rejected the contention of the builder wherein they challenged the validity of Section 43(5) of the Act for being violative of Article 14 and Article 19(1)g of the Indian Constitution on the ground of being unsustainable under the law. The Apex Court while taking a different stand from the builders opined that the given section is harmonious with the provisions of the Indian Constitution.

It was further added by the Apex Court that the Act demarcates the difference between the promoters and the home buyers/allottees on the basis of intelligible differentia and it casts a limited set of rights and duties upon the allotees under Section 19 of the Act and at the same time imposes heavy obligations upon the builders like payment of penalty, insurance plan of real estate etc.

The Hon’ble Supreme Court was also of the view that the promoters and allottees were two different persons having been dealt with separately under the provisions of the Act and that the main objective of the Act was to protect the interest of consumers vis a vis the promoters in the real estate and thus, the provision Section 43(5) of the Act could not be held to be discriminative.

The Apex Court while taking note of various other statutes like Section 18 of SARFASI Act, 2002, Section 19 of Consumer Protection Act, 1986 etc. which provides a prerequisite of depositing a particular amount before an appeal could be heard by the Tribunal, accentuated the intention of the legislature by stating that goal of the draftsmen was to protect the consumer from delay in payment of refund. The legislature was of the view that if the appeal preferred by the promoter fails, the promoter might make the recovery of refund difficult for the consumer and thus, to safeguard the consumer from all miseries an oligation of depositing of amount was put upon the promoter.

The Apex Court opined that such an intention of the legislature where they require the promoter to show their bona fide behavior must be given effect to. The Apex Court added that such a provision helps in avoiding unscrupulous litigation and promotes the promoter to file an appeal only in cases where they might feel that major irregularity has been committed at the first stage.

The Apex Court held that the legislature had the  full right to impose conditions on right to appeal and Section 43(5) of the Act in no situation could  be held invalid as being onerous or in violation  of Article 14 or Article 19(1)g of the Indian Constitution.

Issue No. 5:  Whether the Authority has been conferred power under Section 40(1) of the Act to issue recovery certificate for retrieval of the principal amount?

Section 40(1) of the Act provides that if the promoter, or an allottee or a real estate agent fails to comply with the direction of Adjudicating Authority or the Regulatory Authority or the Appellate Authority for the payment of penalty or compensation imposed upon him then the same shall be recovered in a such a manner as may be prescribed as  arrears of land revenue.

The Hon’ble Supreme Court also observed that there was a visible inconsistency in the powers of the authority regarding refund of the amount received by the promoter and the provision of law in Section 18 of the Act and the text of the provision by which such refund can be referred under Section 40(1) of the Act. However, it is settled principle of law that if the plain interpretation does not fulfil the mandate and object of the Act, the Court has to interpret the law in consonance with the purpose and spirit of the Act. If Section 40(1) of the Act is strictly construed to mean that only penalty and interest on the principal amount are recoverable as arrears of land revenue, it would defeat the basic purpose of the Act as what is to be returned to the allottee is his own life savings with interest calculated by the authority.

Apex Court stated that there appeared an ambiguity in Section 40(1) of the Act and that the provision should be harmonized with the purpose of the Act. , The Apex Court made it clear that the amount which has been determined either by the Authority or the Adjudicating Officer for refunding to the allottees/homebuyers is recoverable within the ambit of Section 40(1) of the Act.

CONCLUSION

The Real Estate (Regulation and Development) Act, 2016 was introduced to reduce the burden on consumer courts through the Consumer Protection Act, 1986 and to cope up with the demands of the real estate agents and the home buyers and also to ensure that the domain of real estate sector in India runs smoothly and efficiently.

Yet, it comes as no surprise that many a times, allottees or homebuyers falls victim to the actions of the builders where they do not get possession of their houses on time or do not get refund at all. Keeping in mind the spirit of the Act, the Hon’ble Supreme Court Bench comprising of Justices Uday Umesh Lalit, Ajay Rastogi and Aniruddha Bose passed a judgement favoring the hapless buyers who become the prey to the mendacious acts of the builders. The Apex Court clearing that the Act is applicable to the ongoing projects and homebuyers can get refund and compensation has given relief to the homebuyers who have invested not only their hard earned money but have also invested their blood and tears to get a roof on their head. From detailing down the history to the entire scheme of the Act, the present case may become a yardstick for the protection of the homebuyers.

[1] CIVIL APPEAL NO(S).   6745 ­ 6749   OF 2021

Related Posts

RERA ACT DOES NOT BAR REMEDIES UNDER CONSUMER PROTECTION ACT

Delay in Possession RERA

For more information please contact us at : info@ssrana.com